The end game for many small and medium-sized enterprise (SME) owner managers is to retire in the confidence that they are leaving the business - their ‘baby’ that they have worked tirelessly to develop and grow - in the capable hands of a new team.

Whether your succession plan involves a trade sale, handing it to the family – or selling up in an MBO/MBI, the crucial consideration is how you make the business an attractive proposition to be carried forward.

A myriad of external factors - including red tape/new legislation, the shifting economic backdrop and sector related issues - can substantially influence how much you walk away with.

Irrespective of the above, planning and positioning are critical to derive the best value from the transfer.

If your business has enjoyed sustained success, it will employ highly skilled, motivated, loyal, optimum performers; be seen as a destination employer; continually delight clients whose expectations are forever exceeded; and post year-on-year growth.

However, no matter how successful you are, unless your company has a robust succession plan you will not realise the value you are seeking. To avoid being handcuffed to the business forever, taking the following steps and bear in mind that it takes around three years to groom a business for sale.

  1. Appoint a managing director
This can be an external appointment or someone from within who has the experience, mental toughness and leadership skills to drive strategic growth and oversee vital day-to-day functions such as sales, recruitment and operations.

Making this appointment enables you to step back from the company and work ‘on’ as opposed to ‘in’ the business. You will know where only you add value as a leader and may initially retain ownership of, for example, quality control innovation.

  1. Ensure your management team is up to scratch
If embarking on the MBO route, ask yourself some tough questions as to whether your management team is up to the job – or if it is time to jettison the underperformers. In our experience of investing in, and developing, management teams in SMEs, we find a lack of ‘commercial nous’ often holds businesses back.
  1. Compile ‘How to’ guides
Nobody knows the company better than you and in the ‘what would happen if you fell under a bus adage,’ it’s vital to ensure every process in the business is documented in a ‘how to’ manual which, dependent upon the nature of your business, can be understood and acted on by everyone from the trainee to the MD. This knowledge is a priceless asset that should be updated as and when required.
  1. Demonstrate a strong customer pipeline
Prospective buyers - whether internal or external - will want to be reassured that the business has a strong pipeline of customers who pay on time and who realise the value of the product or service they receive. Avoid becoming too dependent on one or two large clients for survival - and if you do venture into these waters, ensure that you have long-term contracts which are renegotiated well ahead of expiry. Potential buyers are seeking a picture of permanence and established client relationships that your team are successfully managing on a day-to-day basis.
  1. Keep your accounts faultless
Maintain excellent financial control so a purchaser’s FD can gauge the worth of your concern, its robust internal processes and management reporting. Monthly accounts, debtor days, forecasts for growth in turnover and profitability, as well as the results should be scrupulously recorded and readily accessible at all times.
  1. Develop and retain your staff
The business needs a stable, reliable, motivated workforce that produces peak productivity and minimal costs in terms of attrition, absenteeism and punctuality. For most companies, their greatest assets are their workforce so look after yours and get the best out of people, with decent packages, continuous training and development and a sense of having a stakeholding in the company’s success. Also ensure written contracts, personnel records, all legal compliances and required company policies are up-to-date.

Investing in the necessary grooming will undoubtedly enhance your company’s desirability for prospective purchasers. While implementing the above steps, also make some time to plan what you are going to do with your time and your life post work. Having spent the past 2-3 decades engrossed in your work, many business owners have failed to achieve a work-life balance and are unprepared for retirement both financially and psychologically.

Establishing a life plan for yourself will go a long way to ensure you enjoy a rewarding, fulfilling and well deserved retirement.

By Melanie Hird, director of Seneca Investments